Part I: Search for a house and Loan

1.Select a house, condo, or a townhouse from a real estate website such as Realtor.com or Zillo.com.The price of the home you choose MUST be $274,900. The home, condo or the townhouse can be in any state in the United States.Attach a picture and website address including the description of the house in the PowerPoint presentation.

2.Assume you will pay the asking price for the home. Put the asking price here _____________

3.Most mortgages require a significant down payment. To get the best rate and payment on a mortgage you will typically need to put 20% down. You will then get a mortgage loan for the other 80%. Calculate your down payment and mortgage loan amount and list them below.

Down payment: ___________________Mortgage Amount: __________________

There are many different types of mortgages. Most people work with a loan officer to figure out what type of mortgage best fits their needs. Many people even decide what type of mortgage they need before they start looking for a house. To keep this project fairly simple, we'll assume that you're going to compare a 30 year fixed rate mortgage and a 15 year fixed rate mortgage. Credit scores (also called FICO scores) are extremely important when obtaining any loan. You should do everything you can to have a good credit score. (You may want to internet search to find out how credit scores are determined and what you can do to make sure you have high FICO scores.)

4.Contact a lending institution (a broker, a bank, or a credit union), tell them you're doing a project for school and that you need to get the interest rate on a 30 year and a 15 year fixed rate mortgage. Tell them you're putting 20% down, what your loan amount is, and that you have a 750 FICO score. Record the rates below.Institution Name________________________

30 Year Interest Rate (750 FICO) ___________ 15 Year Interest Rate (750 FICO) ____________

Part II: 30-year Mortgage

5.Calculate the monthly payment for a 30-year loan (rounding up to the nearest cent) by using the following formula. Show your work. [PMT is the monthly loan payment, P is the mortgage amount, r is the annual percent rate for the loan in decimal, and Y is the number of years to pay off the loan.] For the 30-year loan use an annual interest rate of 3.875%.

Show your work here: Write down values you used: P= _________, r= _______________, Y=_____

When determining what type of loan you need, it can be helpful to understand how your payment is applied each month. An Amortization Schedule can help you understand your loan better. An amortization schedule summarizes all the information regarding how much of your payment goes toward the principal, how much goes toward interest, and what the unpaid balance of the loan is at any given time.

To organize the information for the amortization of the loan, construct a schedule that keeps track of: (1) the payment number and/or (2) the month and year (3) the amount of the payment, (4) the amount of interest paid, (5) the amount of principal paid, and (6) the remaining balance. There are many programs online available for this. A Microsoft Excel worksheet that does this available online at the following Microsoft address:

https://templates.office.com/en-us/Loan-amortization-schedule-TM03986974

It's not necessary to show all of the payments. See the example table below.

Payment Number

Payment Date

Payment Amount ($)

Interest ($)

Paid

Principle Paid ($)

Remaining Balance ($)

1

4/22/2020

1061.03

675.00

386.03

239613.97

2

5/22/2020

1061.03

673.91

387.12

239226.85

60

12/22/2025

1061.03

120

11/22/2030

1061.03

240

300

360

Total

You can use this amortization schedule on any standard loan. (It will even work on a car loan. You may want to save this spreadsheet for future use.) Open the spreadsheet and enter the information requested regarding your 30- year loan. Use the first day of next month as the start date of the loan.

6.List the following information from the amortization schedule:

a.Payment Amount: (This should agree with what you computed for the monthly payment

$________________

b.Total Interest Paid Over 30 Years: (This might be called "Cumulative Interest".) $_______________

c.Total Amount Repaid: (The schedule may not give you this number).$________________

There are two ways to figure out how much you paid over the life of the loan. Think for a minute and you can figure one of them out.)

7.Notice that the amount of the payment that goes towards the principal and the amount that goes towards the interest does not stay the same for every payment. Explain what you observe about these values and why they change the way they do.

7.Find the number of the first payment when more of the payment goes toward principal than interest.

Pmt. No. __________________

8.As previously mentioned, these payments are for principal and interest only. You will also have to pay monthly for home insurance and property taxes. In addition, it is helpful to have money left over for luxuries like electricity, heat, running water, and food. As a wise home owner, you decide that your monthly principal and interest payment should not exceed 35% of your monthly take-home pay. What minimum monthly take-home pay should you have in order to meet this goal? Show your work for making this calculation.

SHOW WORK HERE: SHOW WORK HERE:

Minimum Monthly Take-Horne Pay:____________

9.It is also important to keep in mind that your "net" or take-home pay (after taxes) is less than your gross pay (before taxes). Assuming that your net pay is 75% of your gross pay, what minimum gross monthly salary will you need to make to have the monthly net salary stated above? Show your work for making this calculation.

SHOW WORK HERE:

Minimum Monthly Gross Salary: _________________

10.Now compute the required Minimum Gross Annual Salary: $________________

SHOW WORK HERE:

Part III: 15- year Mortgage

12.Calculate the monthly payment for a 15 -year mortgage using the formula one page one. Round the payment to the NEAREST cent. For the 15-year loan use an annual interest rate of 3.365%.

SHOW WORK HERE:

Monthly Payment for a 15- year mortgage = $______________

Construct an amortization table for the 15-year mortgage as you did for the 30-year mortgage

Payment Number

Payment Date

Payment Amount ($)

Interest Paid ($)

Principle Paid ($)

Remaining Balance ($)

1

4/22/2020

1600.25

500.00

1100.25

238999.71

2

5/22/2020

1600.25

495.41

1102.58

237797.13

50

12/22/2025

1600.25

381.87

1218.42

182081.55

90

11/22/2030

1600.25

276.10

1324.19

131205.97

120

150

180

Total

13.List the following information from the amortization schedule:

a.Payment Amount: (This should agree with what you computed in part 12.)$ _____________

b.Total Interest Paid Over 15 Years: (This might be called "Cumulative Interest".) $___________

c.Total Amount Repaid:$ ___________

(The schedule will not give you this number. See if you can figure out both ways to compute this.)

14.Find the number of the first payment when more of the payment goes toward principal than

interest.Pmt. No.___________

15.Over the life of the loan, how much money do you save by having a 15- year mortgage versus a 30- year mortgage?

Total Savings: $ __________

16.If you saved a significant amount of money, why do you think most people get a 30- year mortgage instead of a 15 -year mortgage?

Part IV: Selling the House

14.Let's suppose that after living in the house for 10 years, you want to sell. The economy experiences ups and downs, but in general the value of real estate increases over time. To calculate the value of an investment such as real estate, we use continuously compounded interest.

Find the value of the home 10 years after purchase assuming a continuous interest rate of 4%. Use the full purchase price as the principal. Show your work.

Value of home 10 years after purchase $ ______________________

Show work here

15.Assuming that you can sell the house for this amount, use the following information to calculate your gains or losses:

Selling price of your house:

$ __________________

Original down payment:

$ __________________

Mortgage paid over the ten years:

$ _________________

The principal balance on your loan after ten years:

$ ___________________

Do you gain or lose money over the 10 years? How much? Show your calculations and amounts and summarize your results:

Part V: IMPORTANCE OF HAVING A GOOD CREDIT SCORE

19.Contact a lending institution with the same information you did the first time with two exceptions. Tell them you have a 620 FICO and you're only interested in a 30 year fixed rate mortgage.

30 Year Interest Rate (620 FICO):______________

20.Then complete the amortization schedule with the new rate. Record the total interest paid below.

Total Interest paid over 30 years: $ _______________

21.Compare the total interest paid on the same loan with a 750 FICO versus a 620 FICO. How much would a high FICO save on your loan?

High FICO savings: $ _______________

Part VI: Extra Principal Payments

22. Suppose you paid an additional $100 towards the principal each month on the 30- year mortgage discussed in Part II. The spreadsheet has a place to enter extra principal payments. Enter $100 on this line and answer the following:

a.How long would it take to pay off the loan with this additional payment?________________

b.What is the total amount of interest paid over the life of the loan? $________________

c.What is the total amount repaid over the life of the loan? $ _______________

23. Compare the amount in question # 22-part C with the total amount repaid without any

extra payments in Question # 6-part C. How much would you save if you made the extra $100 per month in principal payments?

$ __________________

Suppose you buy a car for $13,500 and you get a "zero down" loan at 5.9% interest for 5 years.

23.What is your monthly payment?

24.How much interest will you pay over the life of the loan?

What is the total cost of the car?